The PRA and FCA have confirmed that they are consulting to increase the minimum threshold above which the LTI flow limit is applied, following the Financial Policy Committee’s recommendation in November 2024.
The PRA has today launched a consultation paper, proposing amendments to PRA Rulebook and FCA guidance on the threshold for the loan to income (LTI) flow limit in mortgage lending.
The LTI flow limit ensures that mortgage lenders limit the number of new residential mortgage loans made with an LTI ratio at, or greater than, 4.5 to no more than 15% of their total number of new mortgage loans per year.
Currently the threshold exempts lenders that extend residential mortgages of less than £100 million in value per year.
The regulators are proposing to increase the LTI flow limit threshold from £100 million to £150 million.
The change would address inadvertent regulatory tightening by increasing the value of residential mortgage lending that small lenders can extend before becoming subject to the LTI flow limit.
The consultation closes on 8th May 2025. Following this, the FCA will issue revised final guidance and the PRA will publish a policy statement so that their respective guidance and final rules can be in place by H2 2025.
The FCA first announced plans to simplify mortgage lending and advice rules in January this year, with its chief executive saying the changes would "support home ownership and opening a discussion on the balance between access to lending and levels of defaults".
Last week, the FCA confirmed that it has already started reviewing its responsible lending and advice rules for mortgages. In May, it will consult on proposals to make it easier for consumers to remortgage with a new lender, reduce their overall borrowing costs through term reductions, and discuss their options with a firm outside a regulated advice process.
A June discussion paper will then cover topics such as risk appetite and responsible risk-taking, alternative affordability testing and product innovation, lending into later life, and consumer information needs.
